Why Business Models Matter: Foursquare

by Christopher Buck

Evaluating:   Mashable, “5 Ways Foursquare is Changing the World” (Jan. 16, 2010) (available at http://mashable.com/2010/01/16/foursquare-world/).

Joan Magretta’s “Why Business Models Matter” (HBR, 2002) highlights the distinction between the “business model,” which was a fadish concept during the internet boom, and “strategy,” which is the differentiating factor in a business that compliments the business model and helps it succeed.  Even though the internet bubble has burst, business models are not irrelevant – indeed a good business model is fundamental to entrepreneurial success – but, they need to be grounded by realistic expectations.  As Magretta explains, “A good business model answers Peter Drucker’s age-old questions: Who is the customer? And what does the customer value?”  The strategic analysis, “explains how you will do better than your rivals.”

Foursquare is a relatively young mobile application company which is “fueling the location-based mobile space with unique creativity that competitors can’t copy fast enough.”  (Mashable, “5 Ways Foursquare is Changing the World”).  Foursquare’s business model is to produce a free mobile application for iPhones and Androids that allows users to gain “social currency” by updating their locations each time they visit local businesses.  The company plans on making money off of advertisements and revenue sharing arrangements from the businesses that benefit from the service.  Tasti-D-Lite, a New York ice cream company, recently allowed customers to earn rewards points towards ice cream purchases by posting Foursquare updates.  The company is the first to do so, but will likely not be the last.

Strategically, Foursquare differentiates itself from competitors like Loopt by injecting a competitive element into the update process.  Users can become “mayors” of their respective cities by posting the most number of updates there.  Foursquare is more than a geo-location aware social networking service, it is a game as well.  That difference has made it the leader in this relatively new type of social/mobile business space.  The adoption of Foursquare by local companies as an advertising outlet, and by users as a type of review service akin to Yelp, speaks to the service’s powerful ability for both businesses and customers to instantly share information about their hometown experiences.  Foursquare’s business model and strategy are well aligned to provide the company with future success.

Editor’s Note:  The preceding is an application of Harvard Business Review’s “Why Business Models Matter,” by Joan Magretta (HBR R0205F, 2002) to a current business article.  The “Why Business Models Matter” series on the WSBE Business Blog are original articles from MBA students at the Whittemore School of Business and Economics, reprinted with the authors’ permissions.

Christopher Buck, Esq. is an MBA candidate at the Whittemore School of Business and Economics at UNH, founder of NHCaseLaw.com and co-author of “Civil and Criminal Contempt in New Hampshire” (New Hampshire Bar Journal, Fall 2007).

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